Weekly Market Wrap 19-April to 23-April 2021

Marius Paun | London, UK | Senior dealer |Friday 23rd April 2021

European Central Bank Leaves Its Interest Rate Unchanged

The US President Biden announced this week he wants to almost double capital gains tax from 20% currently to 39.6% for those earning more than $1 million. The proposal is also for the top marginal income tax rate to increase from 37% to 39.6%. The aim is to pay for childcare and education. At the same time speculation has built that he is now ready to accept a 25% corporate tax rate (up from 21%) instead of 28% as even some Democratic senators are concerned with the initial proposed hike.

To counter this, the US Senate Republicans offered an alternative to the $2.2 trillion stimulus package that Biden wants to implement. They are ready to support an infrastructure bill of around $800 billion with little or no tax hikes apparently. The reactions in the markets were rather mixed, the US indices tanked yesterday, but going into the weekend it seems the buyers are back in charge.

On Tuesday, Chinese President Xi Jinping said his country will not pursue hegemony regardless of ‘how powerful they become’. His statement comes after a number of smaller nations in the region expressed concerns at ‘China’s aggressive foreign policy’. He also added that Beijing will champion globalisation and multilateral trading. It’s known that US-China relations are off to a rough start under Biden administration so we will wait and see how this latest statement is received.

As widely expected, the European Central Bank’s kept its benchmark interest rate on hold during its April monetary policy meeting. President Christine Lagarde said in her opening statement that ‘vaccine underpins expectations of a firm rebound in economic activity’. She reaffirmed the size of PEPP program of 1.85 trillion euro, QE purchases to continue at monthly pace of 20 billion euro and that the central bank is ready to adjust all of its tools if needed. The EURUSD broke above 1.20 this week.

In the UK, Bank of England announced a joint creation with the UK Treasury of a central bank digital currency task force, in line with many other central banks around the world. All nice and dandy but that digital currency will remain centralised….. thought one of the main reasons for cryptocurrency adoption is being decentralised.

We learnt that OPEC+ is planning to downgrade their April 28 meeting to a monitoring meeting instead. They had already pre-committed to the next months’ output so are probably happy to play the waiting game before taking action again. Meanwhile the US oil prices dropped this week to a low of $60.59 before rebounding to $61.7 on Friday afternoon.

Bitcoin saw a massive sell-off last weekend, the biggest drop in 2 months. One of the reasons behind it might have been a blackout in China’s Xinjiang region which apparently is responsible for a significant chunk of bitcoin mining. The incident saw an almost 50% decline in bitcoin’s hash rate – a rate which measures the processing power used to mine bitcoin and process transactions.